Question 1

If the U.S.interest rate falls relative to the British interest rate,

Accepted Answer

A)  the U.S.demand for pounds will not change 
B)  the U.S.demand for pounds will decrease 
C)  the U.S.demand for pounds will increase 
D)  there will be a rightward movement along the U.S.demand curve for pounds 
E)  there will be a leftward movement along the U.S.demand curve for pounds 
A)  the U.S.demand for pounds will not change 
B)  the U.S.demand for pounds will decrease 
C)  the U.S.demand for pounds will increase 
D)  there will be a rightward movement along the U.S.demand curve for pounds 
E)  there will be a leftward movement along the U.S.demand curve for pounds C

Question 2

For which of the following would purchasing power parity have the least relevance?

Accepted Answer

A)  Pens 
B)  Toothpicks 
C)  Paper clips 
D)  Pencils 
E)  Shoe shines. 
A)  Pens 
B)  Toothpicks 
C)  Paper clips 
D)  Pencils 
E)  Shoe shines. E

Question 3

Which of the following describes a trade deficit?

Accepted Answer

A)  Exports plus imports 
B)  Exports divided by imports 
C)  Exports multiplied by imports 
D)  Exports exceed imports 
E)  Imports exceed exports. 
A)  Exports plus imports 
B)  Exports divided by imports 
C)  Exports multiplied by imports 
D)  Exports exceed imports 
E)  Imports exceed exports. E

Question 4

A reliable indicator of a healthy economy is an appreciating currency.

Accepted Answer

A) True 
 B)False

Question 5

If the U.S.purchased $100 billion in foreign assets and foreigners purchased $50 billion of U.S.assets,which of the following is true?

Accepted Answer

A)  Net exports equal -$50 billion. 
B)  Exports total $100 billion. 
C)  There is a trade deficit. 
D)  Net exports equal $50 billion. 
E)  Imports total $50 billion. 
A)  Net exports equal -$50 billion. 
B)  Exports total $100 billion. 
C)  There is a trade deficit. 
D)  Net exports equal $50 billion. 
E)  Imports total $50 billion.

Question 6

The problem of moral hazard helps explain why the International Monetary Fund _______ the Asian countries during their 1997-1998 crisis and _______ Argentina during its 20011-2002 crisis.

Accepted Answer

A)  helped;abandoned. 
B)  abandoned;helped. 
C)  helped;helped 
D)  abandoned;abandoned. 
E)  none of the above. 
A)  helped;abandoned. 
B)  abandoned;helped. 
C)  helped;helped 
D)  abandoned;abandoned. 
E)  none of the above.

Question 7

The scenario in which the trade deficit slowly shrinks over time is called the

Accepted Answer

A)  soft-landing scenario. 
B)  hard-landing scenario. 
C)  fair-trade scenario. 
D)  free-trade scenario. 
E)  protectionist scenario. 
A)  soft-landing scenario. 
B)  hard-landing scenario. 
C)  fair-trade scenario. 
D)  free-trade scenario. 
E)  protectionist scenario.

Question 8

In the dollar-pound market,whenever there is an appreciation of the dollar,there is

Accepted Answer

A)  an appreciation of the pound 
B)  a depreciation of the pound 
C)  a devaluation of the pound 
D)  a revaluation of the pound 
E)  no change in the value of the dollar 
A)  an appreciation of the pound 
B)  a depreciation of the pound 
C)  a devaluation of the pound 
D)  a revaluation of the pound 
E)  no change in the value of the dollar

Question 9

During the 1997-1998 Asian financial crisis,Thailand tried to defend its fixed exchange rate for the Thai baht and eventually ran out of foreign currency reserves.

Accepted Answer

A) True 
 B)False

Question 10

In the long run,the currency of a country with a higher inflation rate will depreciate against the currency of a country with a lower inflation rate.

Accepted Answer

A) True 
 B)False

Question 11

A floating exchange rate is one that is allowed to move freely between two points that have been determined by an exchange treaty.

Accepted Answer

A) True 
 B)False

Question 12

If Americans expect the dollar price of the British pound to rise,this expectation will cause

Accepted Answer

A)  a rightward movement along the U.S.demand curve for pounds 
B)  a leftward shift of the U.S.demand curve for pounds 
C)  a rightward shift the U.S.demand curve for pounds 
D)  a leftward movement along the U.S.demand curve for pounds 
E)  no change in the U.S.demand curve for pounds 
A)  a rightward movement along the U.S.demand curve for pounds 
B)  a leftward shift of the U.S.demand curve for pounds 
C)  a rightward shift the U.S.demand curve for pounds 
D)  a leftward movement along the U.S.demand curve for pounds 
E)  no change in the U.S.demand curve for pounds

Question 13

If the U.S.interest rate falls at the same time there is an increase in British real GDP,which of the following would happen in the market for British pounds?

Accepted Answer

A)  A rightward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and an indeterminate effect on the dollars per pound exchange rate. 
B)  A rightward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and an increase in the dollars per pound exchange rate. 
C)  A rightward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and a decrease in the dollars per pound exchange rate. 
D)  A leftward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and an indeterminate effect on the dollars per pound exchange rate. 
E)  Cannot be determined without additional information. 
A)  A rightward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and an indeterminate effect on the dollars per pound exchange rate. 
B)  A rightward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and an increase in the dollars per pound exchange rate. 
C)  A rightward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and a decrease in the dollars per pound exchange rate. 
D)  A leftward shift of the demand for pounds curve,a rightward shift of the supply of pounds curve,a larger number of pounds traded,and an indeterminate effect on the dollars per pound exchange rate. 
E)  Cannot be determined without additional information.

Question 14

To maintain a fixed exchange rate,a central bank

Accepted Answer

A)  must buy up any excess supply of its currency at that rate 
B)  must buy up any excess demand for its currency at that rate 
C)  must maintain a fixed money supply 
D)  must also maintain a fixed interest rate target 
E)  should "buy low and sell high" 
A)  must buy up any excess supply of its currency at that rate 
B)  must buy up any excess demand for its currency at that rate 
C)  must maintain a fixed money supply 
D)  must also maintain a fixed interest rate target 
E)  should "buy low and sell high"

Question 15

You see on the news that a recession has started in Saudi Arabia.Which of the following would happen in the market for Saudi riyals?

Accepted Answer

A)  A decrease in the supply of riyals and an appreciation of the riyal. 
B)  An increase in the supply of riyals and a depreciation of the riyal. 
C)  A decrease in the supply of riyals and a depreciation of the riyal. 
D)  An increase in the supply of riyals and an appreciation of the riyal. 
E)  Cannot be determined without additional information. 
A)  A decrease in the supply of riyals and an appreciation of the riyal. 
B)  An increase in the supply of riyals and a depreciation of the riyal. 
C)  A decrease in the supply of riyals and a depreciation of the riyal. 
D)  An increase in the supply of riyals and an appreciation of the riyal. 
E)  Cannot be determined without additional information.

Question 16

If U.S.imports total $100 billion and exports total $150 billion,which of the following would be true?

Accepted Answer

A)  U.S.net exports equal -$50 billion. 
B)  The U.S.has a trade surplus of $50 billion. 
C)  The U.S.has a trade deficit of $100 billion. 
D)  The U.S.has a trade deficit of $50 billion. 
E)  The U.S.has a trade surplus of $150 billion. 
A)  U.S.net exports equal -$50 billion. 
B)  The U.S.has a trade surplus of $50 billion. 
C)  The U.S.has a trade deficit of $100 billion. 
D)  The U.S.has a trade deficit of $50 billion. 
E)  The U.S.has a trade surplus of $150 billion.

Question 17

Under a managed float,

Accepted Answer

A)  currency traders "buy low and sell high" 
B)  a central bank attempts to stabilize an exchange rate 
C)  national governments use fiscal policy to prevent inflation 
D)  managers allow product prices to float in response to supply and demand shifts 
E)  governments attempt to harmonize their tax policies. 
A)  currency traders "buy low and sell high" 
B)  a central bank attempts to stabilize an exchange rate 
C)  national governments use fiscal policy to prevent inflation 
D)  managers allow product prices to float in response to supply and demand shifts 
E)  governments attempt to harmonize their tax policies.

Question 18

One reason why purchasing power parity may not work perfectly is that transportation costs reduce trading possibilities.

Accepted Answer

A) True 
 B)False

Question 19

The supply curve for a foreign currency typically

Accepted Answer

A)  is horizontal 
B)  is vertical 
C)  slopes downward 
D)  slopes upward 
E)  none of the above. 
A)  is horizontal 
B)  is vertical 
C)  slopes downward 
D)  slopes upward 
E)  none of the above.

Question 20

If the U.S.inflation rate falls relative to the Mexican inflation rate,which of the following will happen in the market for pesos?

Accepted Answer

A)  A rightward shift of the demand curve,a leftward shift of the supply curve,and an appreciation of the peso 
B)  A leftward shift of the demand curve,a rightward shift of the supply curve,and an appreciation of the peso 
C)  A leftward shift of the demand curve,a leftward shift of the supply curve,and a depreciation of the peso 
D)  A rightward shift of the demand curve,a rightward shift of the supply curve,and an appreciation of the peso 
E)  A leftward shift of the demand curve,a rightward shift of the supply curve,and a depreciation of the peso. 
A)  A rightward shift of the demand curve,a leftward shift of the supply curve,and an appreciation of the peso 
B)  A leftward shift of the demand curve,a rightward shift of the supply curve,and an appreciation of the peso 
C)  A leftward shift of the demand curve,a leftward shift of the supply curve,and a depreciation of the peso 
D)  A rightward shift of the demand curve,a rightward shift of the supply curve,and an appreciation of the peso 
E)  A leftward shift of the demand curve,a rightward shift of the supply curve,and a depreciation of the peso.

If the U.S.interest rate falls relative to the British interest rate,

For which of the following would purchasing power parity have the least relevance?

Which of the following describes a trade deficit?

A reliable indicator of a healthy economy is an appreciating currency.

If the U.S.purchased $100 billion in foreign assets and foreigners purchased $50 billion of U.S.assets,which of the following is true?

The problem of moral hazard helps explain why the International Monetary Fund _ the Asian countries during their 1997-1998 crisis and _ Argentina during its 20011-2002 crisis.

The scenario in which the trade deficit slowly shrinks over time is called the

In the dollar-pound market,whenever there is an appreciation of the dollar,there is

During the 1997-1998 Asian financial crisis,Thailand tried to defend its fixed exchange rate for the Thai baht and eventually ran out of foreign currency reserves.

In the long run,the currency of a country with a higher inflation rate will depreciate against the currency of a country with a lower inflation rate.

A floating exchange rate is one that is allowed to move freely between two points that have been determined by an exchange treaty.

If Americans expect the dollar price of the British pound to rise,this expectation will cause

If the U.S.interest rate falls at the same time there is an increase in British real GDP,which of the following would happen in the market for British pounds?

To maintain a fixed exchange rate,a central bank

You see on the news that a recession has started in Saudi Arabia.Which of the following would happen in the market for Saudi riyals?

If U.S.imports total $100 billion and exports total $150 billion,which of the following would be true?

Under a managed float,

One reason why purchasing power parity may not work perfectly is that transportation costs reduce trading possibilities.

The supply curve for a foreign currency typically

If the U.S.inflation rate falls relative to the Mexican inflation rate,which of the following will happen in the market for pesos?

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Filters

Exam 17: Exchange Rates and Macroeconomic Policy

If the U.S.interest rate falls relative to the British interest rate,

For which of the following would purchasing power parity have the least relevance?

Which of the following describes a trade deficit?

A reliable indicator of a healthy economy is an appreciating currency.

If the U.S.purchased $100 billion in foreign assets and foreigners purchased $50 billion of U.S.assets,which of the following is true?

The problem of moral hazard helps explain why the International Monetary Fund _______ the Asian countries during their 1997-1998 crisis and _______ Argentina during its 20011-2002 crisis.

The scenario in which the trade deficit slowly shrinks over time is called the

In the dollar-pound market,whenever there is an appreciation of the dollar,there is

During the 1997-1998 Asian financial crisis,Thailand tried to defend its fixed exchange rate for the Thai baht and eventually ran out of foreign currency reserves.

In the long run,the currency of a country with a higher inflation rate will depreciate against the currency of a country with a lower inflation rate.

A floating exchange rate is one that is allowed to move freely between two points that have been determined by an exchange treaty.

If Americans expect the dollar price of the British pound to rise,this expectation will cause

If the U.S.interest rate falls at the same time there is an increase in British real GDP,which of the following would happen in the market for British pounds?

To maintain a fixed exchange rate,a central bank

You see on the news that a recession has started in Saudi Arabia.Which of the following would happen in the market for Saudi riyals?

If U.S.imports total $100 billion and exports total $150 billion,which of the following would be true?

Under a managed float,

One reason why purchasing power parity may not work perfectly is that transportation costs reduce trading possibilities.

The supply curve for a foreign currency typically

If the U.S.inflation rate falls relative to the Mexican inflation rate,which of the following will happen in the market for pesos?

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Filters

The problem of moral hazard helps explain why the International Monetary Fund _ the Asian countries during their 1997-1998 crisis and _ Argentina during its 20011-2002 crisis.